Australian economist warns rates could rise six times, risking recession

Economist Warren Hogan has warned that Australia’s interest rates may need to rise much further to bring inflation under control, with a worst-case scenario pushing the country into recession. He argues that financial markets and households may be underestimating the pressure on the Reserve Bank, while higher rates are already weighing heavily on mortgage holders.

Australia’s cash rate is 4.85 per cent, and Hogan expects two further increases in the first half of next year after a rise widely anticipated for Tuesday. His worst-case forecast is six additional quarter-point rises, taking the rate to between 6 and 6.5 per cent within two years; he cited 7.25 per cent as a level reached before the Global Financial Crisis. Hogan said a 1 per cent cut to recurrent government spending could ease pressure on the Reserve Bank, while buyer’s agent Glenn Price warned a further rise could reduce borrowing power to about 10 per cent below a year earlier.